Covidien PLC Stock Buy Recommendation Reiterated (COV)

Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.

NEW YORK ( TheStreet) -- Covidien (NYSE: COV) has been reiterated by TheStreet Ratings as a buy with a ratings score of A . The company's strengths can be seen in multiple areas, such as its solid stock price performance, revenue growth, attractive valuation levels, growth in earnings per share and expanding profit margins. We feel these strengths outweigh the fact that the company shows weak operating cash flow.

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Highlights from the ratings report include:
  • The stock has not only risen over the past year, it has done so at a faster pace than the S&P 500, reflecting the earnings growth and other positive factors similar to those we have cited here. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 8.6%. Since the same quarter one year prior, revenues slightly increased by 5.5%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • COVIDIEN PLC reported flat earnings per share in the most recent quarter. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, COVIDIEN PLC increased its bottom line by earning $3.92 versus $3.78 in the prior year. This year, the market expects an improvement in earnings ($4.48 versus $3.92).
  • The gross profit margin for COVIDIEN PLC is rather high; currently it is at 62.80%. Regardless of COV's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, COV's net profit margin of 16.13% compares favorably to the industry average.

Covidien plc develops, manufactures, and sells healthcare products for use in clinical and home settings worldwide. Covidien has a market cap of $29.93 billion and is part of the health care sector and health services industry. The company has a P/E ratio of 16.1, below the S&P 500 P/E ratio of 17.7. Shares are up 9.8% year to date as of the close of trading on Wednesday.

You can view the full Covidien Ratings Report or get investment ideas from our investment research center.

--Written by a member of TheStreet Ratings Staff.

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